Little Challenge Seen to Peru Fundamentals

Little Challenge Seen to Peru Fundamentals

April 12, 2011

Following news Monday of a likely runoff between leftist Ollanta Humala and congresswoman Keiko Fujimori, analysts do not see a major change that would threaten Peru’s economic gains of the past decade. “Neither candidate would be in a position to seriously challenge Peru's very strong fundamentals or have the political ability to enact sharp policy adjustments to challenge the country's very strong credit fundamentals,” Moody’s says. The agency points out that any future government would probably have “a difficult time” promoting state-owned companies because of heavy constitutional restrictions, and proposed mining taxes are unlikely to hamper investment prospects. GDP growth of more than 6%, forex reserves of 30% of GDP, and a low debt-to-GDP ratio of 22% make the country resilient to changes in the government, Moody’s says. “The congress is expected to be a highly divided one, thus putting checks and balances on the possibly extreme agendas of Mr. Humala,” Nomura says. “A Humala versus Keiko race is expected to be extremely tight, as they both occupy the polar opposites of the political spectrum and consequently both have sizable rejection votes,” the bank says, noting that it expects a narrow Fujimori victory. Nomura says the market may get jittery if over the next two months poll numbers for Humala get significantly ahead over Fujimori. In the coming days it does not expect Peruvian asset prices to underperform, as the Humala versus Fujimori scenario was widely expected. Humala appeared to have about 30% of the votes late Monday, followed by Keiko with 23% and Pedro Pablo Kuczynski in third with 21%.

Following news Monday of a likely runoff between leftist Ollanta Humala and congresswoman Keiko Fujimori, analysts do not see a major change that would threaten Peru’s economic gains of the past decade. “Neither candidate would be in a position to seriously challenge Peru's very strong fundamentals or have the political ability to enact sharp policy adjustments to challenge the country's very strong credit fundamentals,” Moody’s says. The agency points out that any future government would probab